RBI monetary policy: Will RBI opt for a jumbo 50 bps rate cut today?

Monetary policy committee (MPC) of the Reserve Bank of India (RBI) was scheduled to meet on June 4 to 6, 2025. The MPC's decision will be announced on June 6 by RBI Governor Sanjay Malhotra at 10 am. Analysts and brokerages believe that RBI will slash the interest rate by 25 to 50 basis points (bps), injecting liquidity with its accommodative stance.

While those advocating a small rate cut are expecting headroom for more than expected rate cuts in FY26, while others believe that it is opportune to trim the rates by half a per cent to boost liquidity in the economy to drive the growth when inflation and other indicators support a sharper action towards interest rates. However, tariff uncertainty may weigh in

The mounting expectations suggest that the central bank could pursue further monetary accommodation to reinvigorate domestic growth amid a deteriorating global macro environment. The dovish pivot is largely underpinned by two critical macroeconomic indicators: benign inflation dynamics and incipient signs of a cyclical slowdown, said Bajaj Broking.

In a clear recalibration of policy stance, the MPC has now pivoted towards an accommodative posture, moving away from its earlier neutral bias. An accommodative stance signals the RBI’s willingness to inject liquidity and maintain a pro-growth orientation in the policy framework, it added.

Nirmal Bang Institutional Equities expects the MPC of the RBI to cut rates by 25 basis points. Echoing the similar tone, JM Financial said that the MPC is likely to maintain a cautious view and deliver a 25 bps rate cut on Friday. However, some analysts and brokerages differ.

"We expect additional rate cuts of at least 50 bps with scope for more if growth remains sluggish, with inflation expected to average 3.5 per cent in FY26. Easing inflation along with below trend GDP growth at 6.5 per cent in FY25 and uncertainties around global growth will support further monetary easing," Nirmal Bang said.

The discussion within the MPC is likely to continue to revolve around tariffs and its implications, despite the recent calm due to the pause in reciprocal tariffs. Global central banks will choose to remain data dependent till the US finalises bilateral trade deals, said JM Financial. Incremental rate cuts will depend of the RBI’s potential growth target, the brokerage added.

"The robust GDP growth in 4QFY25 and easing inflation trajectory in the domestic economy will restrict RBI’s ability to front-load (50bps) rate cuts. Although capex intensity and liquidity have improved, credit growth continues to moderate. Front-loading of rate cuts will suppress the interest rate differential further, risking negative impact on flows," said JM Financial.

On the other hand, some analysts see a 50 bps rate cut to boost the slowdown of economic growth and support the financial investments. They see this as the moment for higher rate cuts in the current rate easing cycle to provide a stimulus.

Durable liquidity is likely to remain surplus in FY26 Within this backdrop, RBI response function has to balance call between contained inflation and possible slowdown in domestic growth and support investments, said SBI Securities. "We expect that RBI will continue with its rate cut by 50 bps to support growth. Cumulative rate cut over the cycle could be 100 basis points," it said.

With liquidity in an extended surplus mode, liabilities are getting repriced faster in the current rate easing cycle. Domestic liquidity and financial stability concerns have receded. Inflation is expected to stay within the tolerance band. Keeping the domestic growth momentum intact should be the main policy focus and provides the justification of a jumbo rate cut, SBI Securities adds.

A 25 basis points cut seems most likely, but there’s a strong case for a deeper 50 bps cut to further support credit growth and economic momentum, said Pranay Aggarwal, Director and CEO of Stoxkart- a discount brokerage firm. The focus will also be on the RBI’s forward stance and its plans to balance growth support with financial stability in a dynamic global environment, he said.

"Soft inflation data and moderate demand trends give the RBI room to act. However, global uncertainties, including US policy and external trade dynamics, could influence the tone of the policy statement," Aggarwal said. "A reduction in the repo rate would lower borrowing costs, potentially stimulating consumer demand and encouraging corporate investments."